Finanzas I Cap 5 Prob 9

25. Highland Cable Company is considering an expansion of its facilities. Its current
income statement is as follows:
Highland Cable Company is currently financed with 50 percent debt and
50percent equity (common stock, par value of $10). To expand the facilities,


| |Sales |$4,000,000|
| | Less: Variable expense (50% of sales) |2,000,000 |
| | Fixedexpense | 1,500,000 |
| |Earnings before interest and taxes (EBIT)|500,000 |
| |Interest (10% cost) | 140,000 |
||Earnings before taxes (EBT) |360,000 |
| |Tax (30%)| 108,000 |
| |Earnings after taxes (EAT) |$ 252,000|
| |Shares of common stock |200,000 |
| |Earningsper share |$1.26 |
| |Highland Cable Company is currently financed with 50 percentdebt and 50 percent equity (common stock, par value of |
| |$10). To expand the facilities, Mr. Highland estimates a need for $2 million in additional financing. His investment...